USD/CAD Rides Three-Day Winning Streak as Oil Prices Weigh on Loonie
The USD/CAD exchange rate has been on a three-day winning streak, reaching near 1.3840 during the Asian session on Friday. The Canadian dollar's relative weakness is largely attributed to falling crude oil prices, which have been weighing down Canada's energy export revenues and terms of trade.
However, there are no clear signs of a sustained decline in oil prices, as tensions in the Middle East remain elevated and supply risks persist. If international oil prices strengthen due to these risks, it could improve Canada's terms of trade and potentially lead to a recovery in the Canadian dollar.
The recent acceleration in U.S. Producer Price Index (PPI) figures has also provided support to the U.S. dollar, with the index rising 5.4% year-on-year in August. This has led investors to reassess the Federal Reserve's future interest rate policy and has contributed to the upward trend in USD/CAD.
The upcoming release of U.S. Consumer Price Index (CPI) data will be a key indicator of whether inflationary pressures persist, which could have significant implications for the exchange rate. If the CPI comes in higher than expected, it may further raise expectations for the Fed to maintain a tighter policy stance and drive USD/CAD even higher.